Towards more flexible and accurate cash flow forecasting

Previous research has demonstrated significant variation in actual cash flow profiles. However, the results from traditional cash flow forecasting models do not exhibit these variations. This suggests that further variables are needed to enhance to flexibility of the cash flow profiles produced. This paper presents a model designed to use more than fifty variables to calculate the cash flow of individual contracts. In addition, some of the risk associated with construction contracting was incorporated into the cash flow mechanism. This has been achieved by introducing stochastic simulation and extra variables that contribute towards that risk. The testing of the model demonstrated that by merging further variables, the flexibility and reliability of cash flow forecasting are enhanced. The tests also demonstrated that contractors' cash flow is highly sensitive to risk (variations, cost variances, duration overrun and undermeasurement), which further justifies the methodology adopted.